Rural North Carolinians Pushing for Assurances in Rural Hospital Sale

This is the second story in a two-part series about the sale of North Carolina’s Mission Health to the national HCA Healthcare. Read the first part of the series here.

As North Carolina’s attorney general deliberates over whether to approve the sale of the nonprofit Mission Health System to for-profit Nashville, Tennessee-based HCA, a citizens group is asking that, if approved, the deal ensure they have a voice in the future of health care services in their rural communities.

The Mission system covers 18 mostly rural Western North Carolina counties. Its flagship hospital is in the region’s largest city, Asheville (population 90,000). The system also owns five smaller hospitals in the surrounding rural region, which lies in the southern range of the Blue Ridge Mountains.

One of those hospitals is Blue Ridge Regional in Spruce Pine, an hour’s drive northeast of Asheville. The town of 2,100 is located near the Blue Ridge Parkway, about 14 miles northeast of Mt. Mitchell, the highest peak in the Eastern United States.

Susan Larson is a Spruce Pine resident and a member of Sustaining Essential and Rural Community Healthcare, or SEARCH, which was formed last year when labor and delivery services were discontinued at Blue Ridge.

Like a number of her neighbors throughout the region, Larson is anxious about the future of rural health care services. The asset purchase agreement for the proposed Mission sale stipulates that a $1.5 billion foundation, the Dogwood Health Trust, will manage the proceeds and will use social determinants of health to improve the health and well-being of the communities the system serves.

Larson is concerned that rural communities will be left out of the decision-making process.

“All along, we have said that there are two things we want,” Larson said. “We want our hospitals to be protected, and we want the Dogwood Health Trust to be constituted properly, so that it can indeed serve all 18 counties.”

SEARCH has brought in as a consultant Jay Nixon, former governor and attorney general of Missouri who, while attorney general, challenged HCA in the courts, charging that the corporation had failed to live up to all of its responsibilities. A $160 million settlement was reached.

Nixon’s role is to help advocate for an independent health trust that is “governed now and in the future by a board and communities that will do what’s best for the region.”

“Mission is a nonprofit and has built up a significant value, obviously, as laid out by the transaction that’s on the table now,” Nixon said.

Tax law requires the value of a nonprofit’s assets to remain perpetually nonprofit. When a for-profit health care company buys a nonprofit system, one way to keep the proceeds in the nonprofit realm is to create a health care foundation that supports nonprofit work. That’s the plan for the proceeds from the sale of Mission’s assets.

Having reaped the benefits of a nonprofit, Nixon said, Mission has a responsibility to taxpayers. “It’s the community’s money. It’s the state who provided the nonprofit benefits.”

Selecting the Best

“People in this community have a very long history of feeling that the hospital is ours,” said Jean Hunt, a resident of Yancy County, which is served by Blue Ridge Regional. “We do not consider that hospital Mission’s. We consider it to be ours.” Blue Ridge opened in 1955 with significant help from a community fund drive.

Thus far, nine members of what is proposed to be a 12-to-15-member Dogwood Health Trust board have been appointed. The majority live in Asheville and eight of the nine have current or previous affiliations with Mission.

A map showing where the proposed Dogwood Health Trust board members live compared to Mission Health hospitals. Photo: Taylor Sisk/100 Days in Appalchia

The health trust “very easily could be the largest per-capita in the country,” said Rowena Buffett Timms, Mission’s senior vice president for government and community relations. “What you want are the very best that you have to offer in your community to begin setting that up.”

Timms has heard the concerns: “People went, ‘Wait a minute, you’ve picked all these people who are or have been on the Mission Health board over the years.’ Absolutely.” Those selected, she said, “have deep pedigree, knowledge of health care, have been intimate with Western North Carolina over the years.”

Hunt agrees that such experience is important: “Obviously, we need people on board with specific skill sets.” She believes those individuals can be found in the rural communities.

As regards Susan Larson’s concern that HCA might close one or more of the regional hospitals, the purchase agreement stipulates that no services will be discontinued for five years and emergency services must be maintained for 10 – unless a hospital’s advisory board approves the discontinuance of a service or the sale or closure of a hospital.

The advisory board at each hospital would have eight members: four appointed by Mission, four by HCA.

‘Three-Comma World’

“I get very concerned about transactions of this nature where you don’t have long-term ironclad guarantees that the facilities and services will remain open,” Nixon said.

“The trust, if it could be what they say it’s going to be, could be incredible,” said SEARCH member Risa Larsen. “I love the sound of that trust.”

Nixon too is big on the potential.

“You have the opportunity to keep this system as it exists now, which obviously is functioning and is gaining in value,” he said. “It’s a vibrant hospital system.”

He envisions the enormous potential of maintaining “all the physical assets and the human capital assets,” then introducing a $1.5 billion-plus foundation. “You really do have great opportunities.”

This transaction, Nixon stressed, is “in three-comma world … a billion dollars. There’s a whole lot of good that can be done if it’s done in a transparent fashion, if it’s done with very solid conflict-of-interest and ethics rules around it and a long-term pipeline of local citizens who understand the particular problems and challenges of the region.”

North Carolina’s Most Remote Clinic?

Ocracoke Health Center is likely North Carolina's most remote clinic. It can take as much as four hours to get to the next nearest health care facility, and that's if the ferries are running or a helicopter can make it to the island. Photo: Rose Hoban

The Ocracoke Health Center is one of those vital institutions that keeps the island going, but that doesn’t always translate into fiscal health.

Despite being a business leader in a busy tourist town, Cheryl Ballance sometimes has had to tell summer guests not to come to Ocracoke.

Cheryl Ballance works in her office at the Ocracoke Health Center. She said the clinic’s payor mix consists of about a third of patients who are uninsured and pay on a sliding scale, including paying next to nothing. The rest of her patients are about 20 percent Medicaid, about 20 percent Medicare and the remaining 30 percent are insured. Photo: Rose Hoban

“Sometimes, we’d get calls from people who said they were nine months pregnant with a high-risk pregnancy, wanting to know if we had resources for them,” Ballance said. “I’d tell them, ‘Oh, you really need to look at the map.’”

Ballance, the longtime head of the Ocracoke Health Center, has seen and heard it all from tourists and from the thousand-or-so year-round residents on the 13-mile long island, which lies south of Hatteras Island on the Outer Banks. The health center is an important place on the island’s map, as it’s the only place to get consistent health services. The center does not turn anyone away, insured or not.

Supplementing the remote island’s health care is Gail Covington, a mobile nurse practitioner, who provides services in homes on Ocracoke and Hatteras islands, and who does not take insurance.

“On a summer holiday weekend, we have this blossom of you know, maybe 10,000 people who show up,” Ballance said. ”I think it’s probably like seven to 8,000 during the week.”

Despite the center’s importance to the life of Ocracoke, the past few years have been challenging financially. Ballance said she’s making a go of it, but it’s difficult to keep providing high-quality care on a shrinking health care dollar in one of the most remote and sparsely populated parts of the state.

Seasonal Work, Yearround Expenses

One issue for Ballance is about a third of her patients are uninsured, even as they work two, three, even four gigs at a time during tourist season, when there’s work to be had.

“The people who support this whole resort are people who are only employed, if they’re lucky, somewhat in April, May, June, July, August, and if we don’t have hurricanes September and October,” she said. “Then by November, everything is closed.”

“They’re making a year’s worth of income during that five to six month period.”

Some workers do leave the island in winter, Ballance said. Maybe “they have a friend that lives out in the mountains, ‘Can you come up here for three weeks, we’re really busy, you can help us at ski lodge?’”

But for many people on the island, funds begin to dwindle in the lean months of the late winter, especially as unemployment checks peter out. It’s something familiar to Erin O’Neal, the clinic’s chief operating officer, who used to work in restaurants when she’d come home from school.

“Anybody who’s waiting tables, and you got a lot of that, or cleaning rooms, aren’t a high hourly rate, their unemployment is gonna be the lowest,” O’Neal said, noting how the law changed to shorten the number of weeks someone can draw an unemployment check. “And if there was a storm, and they drew on their unemployment during that time, they’ve already used part of their weeks before they’ve even gone out with their season. So it’s an even longer extended period of time with no income, it’s really hard for people.”

The flip side is that winters give the clinic’s doctor, Erin Baker, time to dig into problems.

Dr. Erin Baker has been at the Ocracoke Health Center for six years and she’s settled in on the island. She’s the facility’s only physician. Behind her is a telehealth kiosk. Photo: Rose Hoban

“In the summertime, she’s clipping those visits for the residents,“ because the clinic is hopping, Ballance said. “But she spends a lot of time, time you’re never going to get anywhere else … in the winter.”

Getting Away Has a Cost

The isolation that tourists crave also poses challenges for the locals.

When Vince O’Neal was a kid on Ocracoke, his only medical encounters were with the school nurse or his grandmother, a midwife who delivered the island’s babies for decades. That was before the clinic started in 1981.

“We did not have any kind of medical services here until that clinic was built,” said the 59-year-old restaurant owner, and, by his reckoning, eighth-generation Ocracoker.

Otherwise, it was off the island to the doctor, a trip that could take hours, or even a whole day.

Merrian Midgett checks in the prescriptions that came over via courier on the Hatteras morning ferry. There’s no pharmacy on Ocracoke, so if a patient needs medications, they come from Hatteras, that is, if the ferry’s running. Photo: Rose Hoban

Access to emergency care from Ocracoke has gotten better over the years. There are always emergency medical technicians on the island and helicopter service to Vidant Medical Center in Greenville or to the Outer Banks Hospital in Nags Head, but there’s no pharmacy and no lab.

Getting off the island takes hours by ferry to the mainland and then to the nearest hospital or an hourlong ferry ride to Hatteras from the northern end of the island and another 90 minutes from there to Nags Head.

So much depends on the ferry. If the weather turns stormy or foggy, the ferries don’t run. Even when they do, getting to a specialist off the island or to the dentist can mean getting up at 3:30 a.m. to get the 5 a.m. Hatteras ferry run. Prescriptions? They come by courier from Hatteras every afternoon.

But if a tourist gets a stingray barb in their foot or a severe sunburn, the center is where they turn.

“We have people who have been coming here for years,” O’Neal said. “They come every season … they’re already in our system.”

Quality on a Thin Budget

Many of the clinic’s child patients are covered by Medicaid, but Ballance said there’s uncertainty about that payment stream too, as the program gets set to transform from a fee-for-service to managed care payment regimen, where clinics such as OHC get paid a set monthly fee in return for providing all of a patient’s needs.

“We want to sign with every (managed care) provider,” Ballance said. “But I don’t want to sign and then I get, you know, 20 percent less reimbursement. I want to get the same reimbursement, like I get with Blue Cross Blue Shield right now.”

OHC has achieved the benchmarks required to be a “quality provider” for BCBSNC, which comes with enhanced payment. But achieving the benchmark to become a quality provider has meant extra work.

“We’re almost at that breaking point. I mean, we’re really on the brink, that we have to hire another person,” she said, noting that the cost of living on Ocracoke can make it challenging to recruit year-round workers. “We don’t earn resort income, but we pay resort prices to live here.”

Even the well-paying patients haven’t been as profitable. Traditionally, the clinic has been happy to treat tourists, who do often have jobs – with insurance – that pay enough for them to come to the island for a vacation. But commercial reimbursements haven’t been keeping pace.

“We barely do a margin in our busy season, June, July and August,” Ballance said.

If it weren’t for the funds the center gets for being a “federally qualified” health center, the fundraising and foundation grants, there’d be no way to keep health care going on the island.

“Health care is vitally important for the island, both to meet the needs of the local community and the tourist population,” said Helena Stevens, who heads the Ocracoke Civic and Business Association. She said her organization supports all of Ballance’s fundraising efforts, such as a seafood dinner later this summer.

She wouldn’t even speculate what losing the clinic would mean to the island.

Erin O’Neal (L) and Cheryl Ballance (R) stand in front of the Ocracoke Health Center, which opened in 1981. Photo: Rose Hoban

This article was originally published by the Daily Yonder. It was co-published by North Carolina Health News with the Ocracoke Observer, which has a version in their August print edition. It is reprinted here with permission.

If policymakers use market-based approaches to solve healthcare access problems, they need a better understanding of how rural markets work, says one researcher.

A lack of competition among health insurers in rural areas has reduced the ability of market-based approaches to increase insurance enrollment, a new study says.

The Affordable Care Act of 2010 sought to improve the health-insurance access in part through fostering more competition among insurers. But rural markets have less competition than metropolitan ones, so the impact of market-focused strategies is diminished, according to a study by the Rural Policy Research Institute (RUPRI) Center for Rural Health Policy Analysis.

The study looked at insurer participation data across three market-based health insurance programs — the Federal Employees Health Benefits Program (FEHBP), Medicare Advantage (MA) and Health Insurance Marketplaces (HIMs – which were created under the Affordable Care Act). Researchers aimed to see whether the competition within an insurance market affected an individual’s decision to purchase health insurance.

That information is key in determining whether market-based health-insurance helps increase enrollment rates in rural areas where population is less dense.

The study found that, in areas that had been dominated by a smaller number of insurers in the past, the Affordable Care Act’s health-insurance marketplaces for individual policies had lower enrollment.

“This finding suggests that an underlying level of competition, based upon historic and/or institutional factors, plays a role in [the Affordable Care Act health-insurance marketplace’s] success or lack thereof in rural places,” the study said.

The study also indicates that a lack of population density doesn’t lower health-insurance enrollment. Rather, the region’s previous lack of competition predicted the lower enrollment rates.

The study used data from the three health insurance programs, as well as the “Herfindahl Index,” which measures market concentration.

Data showed that insurer participation began to decrease in 2017, across the country, but most especially in rural counties and in states that did not expand Medicaid.

Focusing on counties with population densities below 100 people per square mile, the study found that counties that continued to attract insurers tended to have lower prior-year Herfindahl indexes, meaning the counties previously had market competition.

“Over the first four years of [health-insurance marketplace] operation, 2014-17, there was significant entry and exit of insurers in both urban and rural counties,” the study found. “In 2017, data began to show signs of weakening insurer participation, especially in rural counties and in states that did not implement Medicaid expansion.”

The study concluded that a complex set of factors, not just population density, made rural areas less competitive.

“Years of evidence across three market-based health insurance programs clearly indicate that rural places are less competitive,” the study found. “Our findings suggest that while this is due in part to the limitations of small populations, low population density, and fewer available providers, other factors are also at work.”

Those other factors can include things like “the presence and type of hospital systems, the policy environment at the state level, the entrenchment of certain insurers who were early entrants to the private market, the payer mix and even the specific geography in terms of terrain and infrastructure.”

Abby Barker, with RUPRI, said in an email to the Daily Yonder that the study points to the need for a re-evaluation of how rural areas are different than urban areas.

“I think you could say that population density, and some of those other population-related measures… are expected to be significant. But what we added is this measure of competition that shows that another explanatory factor is how concentrated the market is and has been over time. The methods don’t really identify which is MORE important, but the contribution of this work is to say that prior market concentration matters. In my view, it suggests that policies that rely on competition to achieve certain access/affordability goals, really have to be intentional about overcoming this sort of inertia that tends to exist. Once certain insurance issuers are established in a particular geographic region, it’s a little harder for new ones to come in.”

Policies should address the specific needs of rural areas in the future, she said.

“This brief didn’t really examine the urban county data, but I think implicitly our message is that rural places DO have the potential to be different in terms of how much we can rely upon the market model to work well, at least in certain rural places, at least without recognition that rural places may require something explicit in a market-based policy to mitigate these types of issues,” she said.

In this Thursday, July 30, 2015, photo, a sign stating "Save Our Hospital" sits outside of Wedowee Hospital in Wedowee, Ala. Eight rural hospitals have closed in Alabama over the last 15 years and more closures are possible as rural hospitals struggle to stay open. Voters in Randolph County will go to the polls Tuesday on a proposed one percent sales tax to try to keep the doors of the hospital open. (AP Photo/Brynn Anderson)

A Trump administration proposal calls for increasing Medicare reimbursements for some rural hospitals by taking money from hospitals in major urban areas. Both opponents and proponents of the measure say the entire Medicare reimbursement system needs an overhaul.

While proposed changes to Medicare reimbursements to hospitals may keep some rural hospitals from closing, industry executives say the entire system of reimbursement needs to be reformulated.

A proposal by the Trump administration would raise reimbursement rates for some rural hospitals by taking the money from reimbursements to the richest hospitals. Advocates for rural hospitals say it is a way to save those hospitals from closing. But hospital advocates in urban areas say their hospitals shouldn’t be penalized to help those in poorer communities. Still, others say the way reimbursements are determined is flawed.

For some rural hospitals, the proposal could be a game-changer. But about half of all rural hospitals won’t be affected by the changes.

Currently, Medicare reimbursement for hospitals is determined by the U.S. Center for Medicare and Medicaid Services (CMS) using the “area wage index,” which adjusts a hospital’s reimbursement rate based on how much the hospital pays its staff. Hospitals report their wages to the CMS, where they are compared to wages in their respective labor markets. The index is intended to create an annually updated measure that shows how hospital wages compare across regions.

According to the CMS, the system perpetuates an already existing inequity.

“High wage index hospitals, by virtue of higher Medicare payments, can afford to pay their staff more, allowing the hospitals to continue operating as high wage index hospitals,” CMS said in a statement. “Conversely, low wage index hospitals often cannot afford to pay wages that would allow them to climb to a higher wage index. Over time, this creates a downward spiral that increases the disparity in payments between high wage index hospitals and low wage index hospitals, and payment for rural hospitals and other low wage index hospitals declines.”

Proposed Changes

To address this, in April CMS Director Seema Verma proposed changing the system to increase reimbursements for hospitals near the bottom of the area wage index and to reduce reimbursements for those near the top of the wage index. (Under the proposal, hospitals in the bottom 25 percent of the wage index would increase by half the difference between their wage index value and the national 25th percentile wage index value. Hospitals in the top 25 percent of the wage index would receive lower reimbursements, which would keep the changes from raising the overall cost of the program.)

Verma called the policy a rethinking of rural healthcare.

“One in five Americans are living in rural areas and the hospitals that serve them are the backbone of our nation’s healthcare system,” Verma said. “Rural Americans face many obstacles as the result of our fragmented healthcare system, including living in communities with disproportionately higher poverty rates, more chronic conditions and more uninsured or underinsured individuals.”

The difference could mean thousands of dollars per patient for rural hospitals.

For example, under the current reimbursement system, a hospital in a rural community might receive a payment of $4,000 for treating a patient for pneumonia, according to CMS. But at a hospital in an urban community with a higher wage index, the same treatment might be reimbursed at a rate of $6,000.

Still, those payments are well below what hospitals must spend to treat patients. According to a study by the AHA in 2015, Medicare and Medicare reimbursements to hospitals were $57.8 billion less than what it costs the hospitals to provide services.

The study found that Medicare reimbursements amounted to an estimated 88 cents for every dollar spent by the hospitals.

“Payment rates for Medicare and Medicaid, with the exception of managed care plans, are set by law rather than through a negotiation process, as with private insurers,” the study found. “These payment rates are currently set below the costs of providing care, resulting in underpayment.”

Something Is Better Than Nothing for Many

For some hospitals, the money they get from Medicare may be pennies on the dollar but may still generate substantial revenue for the healthcare organization. And the consequences of not having that federal funding can be dire.

The Pineville Community Hospital Association (PCHA) in Pineville, Kentucky, filed for bankruptcy in November 2018. As part of that filing, Jon Gay, with Lexington-based law firm Walther, Gay & Mack, an attorney for the bankruptcy trustee, said an estimated 90 percent of the hospital’s patients were Medicare or Medicaid recipients. In June 2019, according to bankruptcy records, a deal was reached to have personal property, certificates of needs and other licenses transferred to a non-profit organization, Pineville Community Health Center (PCHC), which took over hospital operations.

The city of Pineville stepped in to help the hospital, loaning PCHC $300,000 to ensure the hospital stays open. For residents in the Pineville area, the closure would mean traveling to the next nearest hospital more than 15 miles away.

Prior to that June agreement, however, CMS had terminated its agreements with PCHA after an investigation found several lapses in patient care, meaning no payments would be made for any future Medicare or Medicaid patients to the hospital. While PCHC is working with CMS to obtain a new provider agreement, the loss of federal revenue to the hospital forced the facility to lay off half of its staff — an estimated 60 people.

Pineville, the county seat of Bell County, had a population of 1,732 in the 2010 census. Bell County’s unemployment rate has remained relatively stable, sitting at 5.8 percent as of February 2019. But, according to numbers from the Kentucky Center for Statistics within the Kentucky Department of Education and Workforce, the county’s total workforce in February was 8,448 people. A difference of just 60 unemployed residents would raise the county’s unemployment rate to 6.5 percent. As one of the largest employers in the county, if the hospital were to close, creating the loss of another 60 jobs, the county’s unemployment rate would jump to 7.2 percent, one of the top 10 highest unemployment rates in the state.

Craig Becker, president and CEO of the Tennessee Hospital Association, said the changes to the Medicare reimbursement rates could reshape his state’s healthcare system.

The proposed changes would allow Tennessee hospitals, especially those in East and rural Tennessee, to keep healthcare professionals on staff, as well as help hospitals continue to provide services to their communities, he said.

“Because of the broken Medicare formula, hospitals in Tennessee have lost more than $300 million in Medicare reimbursement in the last 10 years. That money could have been applied to technology, higher wages, recruitment efforts, purchasing of medical equipment and updating many of our aging facilities,” he said in an editorial in the Tennessean.

The issue is particularly important for those in rural Tennessee, he said, where 10 rural hospitals have closed in recent years. Becker said one reason for their closures, among the many, was the area wage index and declining reimbursements.

A Flawed System

Nationally, however, many feel that taking from urban hospitals to give to rural hospitals isn’t an answer to the funding crisis. American Hospital Association Executive Vice President Tom Nickels said another solution needs to be found.

“The area wage index is intended to recognize differences in resource use across types and location of hospitals. Hospitals, Congress and Medicare officials have repeatedly expressed concern that the wage index is flawed in many respects,” Nickels said in an emailed statement. “The AHA appreciates CMS’s recognition of the wage index’s shortcomings. At the same time, improving wage index values for some hospitals – while much needed – by cutting payments to other hospitals, particularly when Medicare already pays far less than the cost of care, is problematic. CMS has the ability to provide needed relief to low-wage areas without penalizing high-wage areas.”

In fact, a study by the U.S. Office of Inspector General entitled “Significant Vulnerabilities Exist in the Hospital Wage Index System for Medicare Payments” found that the Medicare reimbursement system is flawed. CMS lacks the ability to penalize hospitals that submit inaccurate or incomplete wage data and has little oversight to ensure hospitals submit accurate data, the report said.

The Inspector General’s report found that these vulnerabilities might prevent the CMS from accurately determining local wages, which would, in turn, affect Medicare payments to hospitals.

But that doesn’t begin to cover how flawed the system is, said Alan Morgan, CEO for the National Rural Hospital Association in Washington, D. C.

The proposed changes won’t address the needs of nearly half the rural hospitals in the country, those considered critical access hospitals, he said. Critical access hospitals, generally speaking, are those with fewer than 25 inpatient beds in rural areas. For those 1,300 rural hospitals, which are not dependent upon the wage index, the administration’s proposal would have no effect.

“Is this (proposal) a good thing? Yes,” Morgan said. “Is this going to address some payment inequities? Yes. Is this going to solve all the problems faced by rural hospitals? No. It’s a good provision. It’s a targeted provision. But it won’t help almost half of the rural hospitals in our country.”